The NAFTA Demand That Could Put Canadians Onside With Trump

Canada has the lowest duty-free limit in the developed world.

The Trump administration released on Monday its wish list for an overhaul of NAFTA.

The 16-page document calls for freer trade in telecom services and online shopping; greater exports of U.S. dairy, wines and grains; an overhaul of the dispute-settlement mechanism and greater access for U.S. banks in Canada.

It all points to a long negotiation ahead for Canadian, U.S. and Mexican diplomats when talks begin in Washington, D.C., in mid-August. But one demand the U.S. has made could put Canadians onside with Trump, and at odds with Canadian retailers.

Among the U.S.'s demands is an increase to the value of goods Canadians can bring into the country from the U.S. without paying duties, known as a "de minimis threshold."

Currently, Canada's de minimis threshold is $20; goods over that value are subject to a duty at the border. The U.S. is asking Canada to raise the duty-free limit to a level similar to the U.S.'s, which is $800.

That could make many border-hopping Canadians happy. According to a Nanos poll last fall conducted for the Canadian American Business Council, 76 per cent of Canadians would like to see the limit raised to at least $200.

The Trump proposal immediately got the backing of online retailer eBay Canada, whose customers often purchase goods from the U.S. The company has long been arguing for a hike in Canada's duty-free level.

"Canada's de minimis threshold was originally set in the early 1980s," eBay said in a statement Tuesday. "Today, it is the lowest in the industrialized world and among the lowest globally. Canada's threshold is in line with nations such as Jordan and Uganda."

The company pointed to a C.D. Howe study from 2016 which showed that it costs the government more money to collect duties on items between $20 and $80 than it collects in duties. It found the government spends $166 million annually to collect $39 million in revenue.

smontgom65 via Getty Images
Cars wait to cross the border in Windsor, Ontario, Canada on June 27, 2014. Canadian retailers fear an increase in the country's de minimis threshold would increase cross-border shopping.

"Academic and consumer research has shown that a meaningful increase will create a win-win-win situation for Canadian small and medium-sized businesses, consumers and taxpayers," eBay Canada's managing director Andrea Stairs said in a statement.

But the prospect of Canadians being able to do more of their shopping in the U.S. is striking fear into the hearts of many Canadian retailers, who see a threat to their businesses in the Trump proposal.

"It would be a catastrophe for retail in this country," Larry Rosen, CEO of Harry Rosen, told The Canadian Press this week. "There isn't going to be a person in the country that isn't going to take all their business to online U.S. retailers."

Rosen said U.S. border cities would see a boost to their economies from such a move, as Canadian retailers, including his own, would move parts of their operations such as warehouses south of the border.

The Retail Council of Canada says raising the threshold would put Canadian retailers at a disadvantage, because consumers are required to pay GST/PST or HST on those goods.

"Why should goods from one source be tax free when the ones from another source are taxable?" Retail Council vice-president of public affairs Karl Littler told the Globe and Mail.

He added that raising the threshold would be "cutting your own throat economically."